Value Investors Better Buy AIG Stock

- July 1, 2016

AIG stock

American International Group (NYSE:AIG) is a very complicated company. When coupled with its struggles during the financial crisis, AIG stock is seen by many as a somewhat risky investment, even to value investors.

To the contrary, AIG stock could not be any more attractive for long-term investors. Yes, much of its earnings power and future lies on federal regulation and oversight, but still, even as it is today there are three undeniable, and very clear reasons why investors can not ignore AIG.

AIG stock: Reasons to buy are clear as day

First, at the epicenter of AIG as a company lies insurance. It provides  property casualty insurance, life insurance, retirement products, mortgage insurance, etc., in more that 100 countries to both consumers and businesses.

It’s not an exciting business, but it is a necessary segment that makes up much of the financial sector. With the outlook for financials increasingly bullish, investors must appreciate the longevity and stability of what AIG does.

Second, AIG stock is ridiculously cheap. It trades at just 67% of its book value per share. What makes this important is that book value per share is the absolute gold standard for valuing both insurance companies and financial stocks in general. For value investors, it does not get much better than AIG stock.

The big reason to go long AIG stock

Third, Atlantic Equities analyst John Heagerty correctly noted that AIG is in the early innings of a very large capital management program. The company has vowed to return $25 billion back to shareholders over the next two years.

With just $3 billion spent in the first quarter, $22 billion remains for buying back stock. This means that AIG could effectively buy back one-third of its shares outstanding by the end of next year.

To put that in perspective, Apple (NASDAQ:AAPL) has reduced its share count by 16.7% since the start of 2013. By doing so AAPL stock has had to work harder in order for Apple to maintain its market capitalization.

Specifically, AAPL stock has soared 22% since 2013 but its valuation has increased by only 1.6%. That’s remarkable.

What this illustrates is even if the market determines that AIG’s damn near pathetic valuation is an appropriate reflection of the company, the massive buybacks alone will have a profound effect on the stock. For this reason, it doesn’t get much better for value investors than buying and holding a large stake in AIG stock.

 

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  1. […] loaded with an aggressive stock buyback plan, and there are countless reasons why AIG stock is perfect for value investors. This is a stock that trades at just 70% of its book value per share in an insurance segment that […]

  2. […] is loaded with an aggressive stock buyback plan, and there are countless reasons why AIG stock is perfect for value investors. This is a stock that trades at just 70% of its book value per share in an insurance segment that […]

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